Buiding competitive strategy in the rice farming industry the case of an dinh company

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Khac Trung BUILDING COMPETITIVE STRATEGY IN THE RICE FARMING INDUSTRY THE CASE OF AN DINH COMPANY Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Ta Ngoc Cau Hanoi – 2010 TABLE OF CONTENTS ACKNOWLEDGEMENT……………………………………………………… i ABSTRACT…………………………………………………………………… ii TÓM TẮT……………………………………………………………………… iv TABLE OF CONTENTS……………………………………………………… vi LIST OF TABLES AND FIGURES .… ix LIST OF ABRREVEATIONS…………………………………………………… xi INTRODUCTION……………………………………………………………… 1 The thesis title.……………………………………………………………… The thesis necessity…… ………………………………………………… Objectives………………………………………………………………… Method……………………………………………………………………… Data sources………………………………………………………………… Significance………………………………………………………………… Limitations………………………………………………………………… Expected results…………………………………………………………… The thesis structure………………………………………………………… 10 Suggestion for future research……………………………………………… CHAPTER 1: LITERATURE REVIEW ……………………………………… 1.1 Competitive strategy………………………………………………………… 1.1.1 Strategy and business strategy…………………………………………… 1.1.2 Competitive strategy……………………………………………………… 1.2 Strategic management……………………………………………………… 1.2.1 Vision and mission………………………………………………………… - vi 1.2.2 Strategy formulation and selection………………………………………… 1.2.3 Strategy implementation…………………………………………………… 1.2.4 Strategy evaluation………………………………………………………… CHAPTER : RICE FARMING INDUSTRY IN VIET NAM………………… 30 2.1 An overview of rice farming ……………………………………………… 30 2.2 The developing of rice farming industry in Viet Nam……………………… 2.3 Factors effecting rice farming ……………………………………………… CHAPTER : BUILDING COMPETITIVE STRATEGY……………………… 3.1 Company profile……………………………………………………………… 3.2 Strategy formulation ………………………………………………………… 3.2.1 External environment analysis……………………………………………… 3.2.2 Industry environment analysis……………………………………………… 3.2.3 Internal environment analysis……………………………………………… 3.2.4 SWOT analysis …………………………………………………………… 63 3.2.5 Strategy formulation and selection ………………………………………… 64 3.2.5.1 Production expanding …………………………………………………… 65 3.2.5.2 Japanese rice farming and Vietnamese high quality rice processing …… 65 3.2.5.3 Rice seed producing ……………………………………………………… 65 3.2.5.4 Marketing enhancing …………………………………………………… 65 3.3 Implementing the competitive strategy ……………………………………… 66 3.3.1 Objectives ………………………………………………………………… 66 3.3.2 Solutions …………………………………………………………………… 67 - vii 3.3.3 Action plan ……………………………………………………………… 3.3.4 Recommendations to AnDinh Company ………………………………… 3.3.5 Recommendation to the government …………………………………… 71 CONCLUSION ………………………………………………………………… 72 REFERENCES ………………………………………………………………… 73 APENDDICES ………………………………………………………………… 75 - viii - LIST OF TABLES AND FIGURES Table 1.1 Example of possible factors in a PEST analysis Table 1.2 Industry’s entry and exit barriers Table 1.3 Bargaining powers of suppliers and buyers Table 1.4 The completed SWOT profile Table 1.5 Appropriate strategies selection (GREAT model) Table 2.1 The world rice production Table 2.2 The world rice consumption and stocks Table 3.1 Vietnam quarterly GDP growth Table 3.2 An Dinh external environment EFE matrix Table 3.3 External environment analysis conclusion Table 3.4 Industry analysis conclusion Table 3.5 An Dinh internal environment IFE matrix Table 3.6 Internal environment analysis conclusion Table 3.7 Competitive strength assessment Table 3.8 Sustainable competitive advantage Table 3.9 AD Company’s SWOT profile Table 3.10 AD Company’s appropriate strategies selection (GREAT model) Table 3.11 AD Company’s action plan Figure 1.1 Porter’s Generic Strategies Figure 1.2 The strategic management process Figure 1.3 Five Forces Model Figure 1.4 The value chain - ix - Figure 1.5 Strategic analysis processes Figure 1.6 SWOT Matrixes Figure 2.1 Vietnam rice farming areas Figure 2.2 Vietnam rice productions Figure 2.3 Rice volumes for consume and export (thousand tons) Figure 2.4 Vietnam export value by rice and commodity group (2009) Figure 2.5 Vietnam agro-forestry and rice export value (US $billion) Figure 3.1: Corruption Perceptions Index 2009 Figure 3.2 Vietnam GDP per capita growth Figure 3.3 VND/USD exchange rate (2008-2010) Figure 3.4 Vietnam population pyramid (2009) Figure 3.5 Impacts of sea level rise (1m scenario) Figure 3.6 Value chain model in rice farming industry Figure 3.7 AD Company Revenue and Net profit Figure 3.8 AD Company’s organizational structure Figure 3.9 AD Company’s SWOT matrix Figure 3.10 AD Company’s strategies implementation process -x- LIST OF ABRREVEATIONS R&D: Research and Development PEST: Politics, Economics, Social, Technology SWOT: Strengths, Weaknesses, Opportunities, Threats EFE: External Factor Evaluation IFE: Internal Factor Evaluation GREAT: Gain, Risk, Expense, Achievable, Time USDA: United State Department of Agriculture GSO: General Statistics Office No: Number WTO: World Trade Organization IMF: International Monetary Fund UK: United Kingdom GDP: Gross Domestic Product VCCI: Viet Nam Chamber of Commerce and Industry CPI: Consumer Price Index USA: United State of America AD: An Dinh FAO: Food and Agriculture Organization US $: United State Dollar - xi - INTRODUCTION The thesis title Building competitive strategy in the rice farming industry - The case of An Dinh Company The thesis necessity The event of Viet Nam joining WTO in 2007 has created a range of development opportunities and challenges to investors in rice farming in Vietnam Vietnam is known as one of world’s richest agricultural regions and is the second-largest (after Thailand) exporter worldwide and the world's seventh-largest consumer of rice.Vietnam government has made effort in order to develop high quality and value-added rice production and export An Dinh - a rice farming and trading company- has been case-studied and researched that its rice production is limited in capability resulted in an irrelative market share A higher position in the market requires a competitive strategy implementation by intensively investing in expansion and enhancing marketing activities This thesis, in above actual fact, is to build an appropriate competitive strategy for An Dinh Company’s development It has also added the value to the strategy formulation by giving recommendations and proposing an action plan, which can be applied in implementing strategies Objectives The objectives of this thesis are to (a) review the theory of building competitive strategies, (b) provide an overview of rice farming industry in Vietnam, (c) present An Dinh Company and analyze its business environment, and (d) build an appropriate competitive strategy for company’s further development The study also gives a number of insights into company’s current strength and weakness, and identifying an action plan for production expansion -1- Methodology This thesis applies the case study to build competitive strategy for An Dinh Company The research has been prepared mainly through on desk study reviews of available literature and data through three basic steps: The first step is to review theories of competitive strategy and strategic management The study focuses on the literature view of existing approaches to competitive strategy formulation, and identifies a common process to build competitive strategies The second step based on the research of rice farming industry in Vietnam in terms of factors and influence on the business success Last but not less, the case study of An Dinh Company is analyzed inclusive of interview with the managers of company who are responsible for strategic management planning This is to contribute competitive strategy and provide recommendations on strategy implementation Data sources The theoretical review and collection of secondary data display from research of books, reports, newspapers and internet sources The primary data was collected through interviews with An Dinh Company’s managers and key employees Significance By reviewing the theory of competitive strategy and strategic management and understanding the impacts of business environment, the thesis benefits An Dinh Company in implementing appropriate competitive strategies This theoretical approach could be applied in cases of other companies in rice farming industry -2- Limitations The study would be limited due to a small number of competitors in the local market are considered Moreover, those competitors could not be analyzed with detail information and data, which may not entirely reflect the industry’s competitive environment Expected results The result of this thesis is to build appropriate competitive strategies for further development of An Dinh Company The methodology is expected to be applied effectively in the case study of other companies in rice farming industry The thesis structure Beginning with the introduction part, the thesis concludes three chapters and the conclusion part Chapter provides a fundamental review of competitive strategy and strategic management theory focusing on the competitive strategy formulation process Chapter discusses rice farming status in Vietnam, highlighting its latest achievement and key factors Chapter presents An Dinh Company and analyzes its environment to identify external opportunities and threats as well as internal strength and weakness that influence on building company’s competitive strategy Action shall be recommended for strategic management implementation 10 Suggestion for future research A rapid change of factors like technological advances, climate, and customer’s lifestyle creates both opportunities and challenges to the rice farming industry and An Dinh Company Therefore, a deeper research undertaken could create more benefit to larger size companies -3- CONCLUSION This thesis provides a fundamental knowledge of strategy and strategic management It emphasizes on business strategy formulation for a small company The thesis also helps to apply the theory into practice by building competitive strategies and giving some recommendations on how to apply the new strategy into a company Rice farming is of considerable importance to Vietnamese economy, especially in rural areas, for its employment creation and income generation Sustainable rice farming is a central component of the government’s development strategy, with the industry’s high value addition being actively encouraged In that industry, the challenge is to meet the high demand and gain larger market share while ensuring production efficiency and quality of products AD farm are well funded and planned with technological approach, resulted in the development of the company, but this development is modest comparing to the high potential of rice farming industry in Ha Noi By strategically utilizing the industry’s opportunities and concentrating on its sustainable competitive advantages, AD is suggested to expand its production and enhance marketing activities in order to achieve leadership role and higher market position The company can achieve its strategic goal by implementing the competitive strategy, including expanding farming area and enhancing marketing activity The short-term goal of the strategy is to improving the company’s current production and marketing activity while the long-term is targeted towards the growth of the business and regional market share By reviewing the theory of strategy and strategic management and understanding the impacts of business environment, the thesis benefits AD Company in building appropriate competitive strategies This theoretical approach can be applied in cases of other companies in rice farming industry -72- REFERENCES Vietnamese AD Company (2009), Annual report AD Company (2007, 2008, 2009), Financial statements Ministry of agriculture and rural development (2009), Annual report Ministry of agriculture and rural development (2008), Climate change impacts on agriculture Vietnam General Statistics Office (1990 - 2009), “Annual socio-economic statistical data” Viet Nam economy development update report (2009, 2010), World Bank 2010 Viet Nam State bank report (2007 – 2010), “The USD/ VND exchange rate” “GDP Viet Nam in quarterly 2008, 2009, 2010”, VCCI report 2010 English Asia-Pacific Economic Cooperation (APEC, 2007), “Viet Nam Economy Report” Lloyd L Byars, Leslie W Rue, Shaker A Zahra (1996), “Strategic management”, Irwin, Chicago Henry Mintzberg (1994), “The Rise and Fall of Strategic Planning” Jiri Dusik, Jian Xie (2009), “East and Southeast Asia - A Progress Review and Comparison of Country Systems and Cases”, World Bank FAO (2009), “World agriculture production” http://wikipedia.org/wiki/Strategy - 73 - Alex Miller, Gregory G Dess (1996), “Strategic management”, McGrawHill, New York Fred Nickols (2000), “Strategy: Definitions and Meaning”, www.nickols.us Fred Nickols (2000), “Strategy is Execution”, www.nickols.us 10 Oxford English Dictionary (2009) 11 Michael Porter (1998), “Competitive strategy”, Free Press, New York 12 Michael Porter (1996), “What Is Strategy?”, Harvard Business Review, November-December 1999, Harvard university, Massachusetts 13 R Charan, G Colvin (1999), “Why CEOs Fail”, Fortune Magazine, 21 Jun 1999 14 I Cobbold & G Lawrie (2001), “Why only one third of UK companies achieve strategic success?”, 2GC Ltd., May 2001 15 Kai Riemer (2002), “Teaching note on strategy”, European socio-economic IST research project 16 Vietnam: 2010 Article IV Consultation—Staff Report and Public Information Notice, IMF 2010 17 “Principles and practices of rice production”, Surajit K De Datta 1981 18 United States Department of Agriculture (2010), “Rice year book table” 19 “Sustainability of rice in global food system”, N.G.Downing, S.M Greenfield and K.S Fischer 1997 20 http://www.maxi-pedia.com/EFE+matrix+external 21 http://www.maxi-pedia.com/IFE+matrix+internal - 74 - APPENDICES Appendix A Rice production by the major producer nations 2008 Rank Area China India Indonesia Bangladesh Viet Nam Thailand Myanmar Philippines Brazil 10 Japan 11 Pakistan 12 United 13 Egypt 14 Republic of Korea 15 Cambodia 16 Nigeria 17 Nepal 18 Sri Lanka 19 Madagascar 20 Peru America * : Unofficial figure [ ]:Official data F : FAO estimate Source: FAO, 2010 -75- Rice production by the major producer nations 2007 Rank Area China India Indonesia Bangladesh Viet Nam Thailand Myanmar Philippines Brazil 10 Japan United 11 America 12 Pakistan 13 Egypt 14 Cambodia 15 Republic of Korea 16 Nepal 17 Nigeria 18 Sri Lanka 19 Madagascar 20 Peru * : Unofficial figure [ ]:Official data F : FAO estimate Source: FAO, 2010 -76- Appendix B Vietnam production of farmed agriculture products Year Area (1000 ha) 1990 6,042.8 1991 6,302.8 1992 6,475.3 1993 6,559.4 1994 6,598.6 1995 6,765.6 1996 7,003.8 1997 7,099.7 1998 7,362.7 1999 7,653.6 2000 7,666.3 2001 7,492.7 2002 7,504.3 2003 7,452.2 2004 7,445.3 2005 7,329.2 2006 7,324.8 2007 7,207.4 2008 7,400.2 2009 7,440.1 Source: GSO, 2010 -77- Appendix C AD Company’s financial performance VND 1000 Profit and Loss Net sales Gross profit Operating income tax) Net profit Balance sheet Current assets Fixed assets Total assets Short-term liabilities Long-term liabilities Owners’ equity Total liabilities and equity Ratios Growth (%) Sales Net profit Total assets Owner's equit Gross profit margin (%) Net profit margin (%) ROE (%) ROA (%) Current ratio Debt/equity ratio Source: AD Company, 2010 -79- Appendix D AD rice field in Thai Binh (Source: AD Company, 2010) Rice field -80- Processing assembly -81- Rice product -82- Appendix E AD Company’s rice processing method (Source: AD Company, 2009) Quy trình quản lý sản xuất lúa gạo Nhập giống nguyên chủng từ Nhật Bản (đối với lúa Nhật Bản), sau nhân thnh giống cấp Chọn vùng sản xuất lúa Nhật Bản: Chân đất tốt, sạch, không ô nhiễm v chủ động tới tiêu Sản xt thư nghiƯm trªn diƯn tÝch nhá, theo dâi v đánh giá chất lợng, suất lúa Nếu cho kết qu¶ tèt sÏ triĨn khai s¶n xt lín ë vơ sau Ký hợp đồng sản xuất bao tiêu lúa với Nông dân, úng trớc giống Cung cấp quy trình kỹ thuật theo quy trình sản xuất lúa Hữu Cơ (sạch, an ton) Giám sát sinh trởng lúa đồng, đa biện pháp kỹ thuật phù hợp Tổ chức thu hoạch kịp thời đảm bảo chất lợng gạo tốt Lúa sau thu hoạch đợc mang nh máy sấy Sau lúa đồng v an ton b¶o qu¶n khèng phÐp Sau sấy, lúa đợc lm v đóng bao Sau đợc bảo quản nhiệt độ lạnh (1518 oC) Bóc trấu v xay sát theo đơn hng Đảm bảo chất lợ ng gạo tơi Máy bắn mu lọc tạp chất, hạt khac mu, sạn đồng đều, bắt mắt Gạo thnh phẩm đợc khử trùng sau đợc đóng b ao đem tiêu thụ -83- đ QUY TRìNH SảN XUấT GạO CHấT LẻNG CAO Lúa t−¬i Bóc trÊu Khư trïng Cơ sở vật chất, mỏy múc thit b STT Hạng mục đầu t 10 11 12 13 14 M¸y sÊy (10 tÊn lóa /24h Kho lạnh (300 m3) Dõy chuyền xay sát (1 tấ Máy đóng gói Xe nâng Máy bắn mu Máy rửa rau Trạm điện & hệ thống đ Thiết bị PCCC Nh m¸y n−íc T−êng ro (m3) Nh kho (m2) Nh chøa trấu (m2) Văn phòng, bảo vệ ,WC - 15 16 17 Sân bê tông (m2) Đờng nội (m2) Hệ thống thoát nuớc (m) Hệ thống cung cấp điện: H thng trạm biến áp đảm bảo chủ động cung cấp điện cho hoạt động sản xuất Từ trạm biến áp nội bộ, cáp điện đợc kéo vo trạm p hân phối điện nằm khối nh Tất nguồn điện đợc thiết kế sử dụng điện áp 220V/380V 50Hz Hệ thống điện khu xởng đợc thiết kế máng đỡ, nguồn điện động lực đợc ống lồng kéo từ máng cáp tới điểm đấu nối vo thiết bị th eo quy chế kỹ thuật điện Nguồn điện cung cấp phục vụ cho hệ thống lạnh đợc sn kỹ thuật v cung cấp đến thiết bị điều ho không khí Hệ thống chiếu sáng: Hệ thống đèn chiếu sáng đợc thiết kế chống bụi, nhẵn, góc cạnh để dễ dng lm Hệ thống đèn đợc đặt âm sn bê tông đ ể độ sáng đạt yêu cầu sản xuất đảm bảo vo khoảng 200 lux 500 lux Mặt khác, mái kho đợc lắp đặt tôn thông minh đảm bảo ánh sáng tự nhiên ban ngy Hệ thống chống sét: Xởng đợc thiết kế hệ thống chống sét theo phơng pháp đại dùng kim thu sét thay dùng nhiều kim đặt chỗ trọng điểm theo phơng pháp cũ Đây l phơng án kim thu sét đại, tính an ton c ao Hệ thống tiếp đất đợc đóng cọc liên kết với v điện trở đất phải đạt d ới 10 v đợc kiểm tra đặn hng năm Hệ thống Phòng cháy chữa cháy: Xởng đợc trang bị hệ thống báo cháy tự động bao gồm tủ báo cháy trung tâm đặt phòng trực bảo vệ thờng xuyên đợc theo dõi, đầu dò khói, nhiệt đợc bố trí khu sản xuất, số lợng đầu dò đợc bố trí phù hợp với tiêu chuẩn phòng cháy chữa ch¸y cđa ViƯt Nam HƯ thèng dÉn n−íc tõ bĨ nớc trung tâm Đảm bảo cung cấp đủ nớc xử lý có cố xảy Hệ thống thông tin liên lạc: Trong khu xởng v văn phòng lắp đặt hệ thống th ông tin liên lạc nội v có khả liên lạc bên ngoi qua tổng nội ph ục vụ nhu cầu s¶n xuÊt v kinh doanh -85- ... Food and Agriculture Organization US $: United State Dollar - xi - INTRODUCTION The thesis title Building competitive strategy in the rice farming industry - The case of An Dinh Company The thesis... farming industry in Vietnam in terms of factors and influence on the business success Last but not less, the case study of An Dinh Company is analyzed inclusive of interview with the managers of. .. Significance By reviewing the theory of competitive strategy and strategic management and understanding the impacts of business environment, the thesis benefits An Dinh Company in implementing appropriate